INTERVIEW WITH THE GENERAL DIRECTOR OF FAGACE
THE BURKINABÈ STATE DAILY SIDWAYA N9457 OF AUGUST 20, 2021
Thank you for granting this interview to Sidwaya, the newspaper of all Burkinabè people. Before we begin, can you introduce yourself further to our readers?
I would first like to thank you for your interest in our Institution, the African Guarantee and Economic Cooperation Fund (FAGACE).
It is a real pleasure for me to respond to this interview with SIDWAYA which carries with it a good part of the history of Burkina Faso and Africa. I would like to take this opportunity to salute the new dynamic and the initiatives that you are implementing through your various programs and sections for the promotion of citizen information in Burkina.
To return to your question, of Chadian nationality, I was appointed to head the African Guarantee and Economic Cooperation Fund (FAGACE) since July 1, 2020 following an international call for applications process. Previously, I successively held the positions of University Researcher at CERDI and FERDI at the University of Clermond-Ferrant in France, Minister of Economy, Planning and Development in Chad and Administrator of the IMF for Africa in Washington DC.
You have been at the head of FAGACE since July 2020. Can you present this institution to us (its status, its missions, its capital, the origin of its resources, etc.)?
A pioneer in the field of bank guarantees in Africa since 1977, the African Guarantee and Economic Cooperation Fund (FAGACE) is an African institution which works for the economic and social development of its member states by facilitating access to financing for SMEs/SMIs. and entrepreneurial projects, mainly through risk sharing mechanisms, for more than 40 years.
The Fund’s intervention areas cover CEMAC, UEMOA, Rwanda and Mauritania, with gradual expansion across the entire African continent.
The share capital of the Fund is 350 billion FCFA subscribed to 66.66%. It is open to States and development financial institutions.
The head office of FAGACE is located in Cotonou in the Republic of Benin. For greater proximity with its partners and better efficiency, the Fund also has two (2) Representations; one in Cameroon and the other in Rwanda.
Concretely, what are the different guarantees that FAGACE offers to its customers?
FAGACE, through its credit guarantee offer, is the key solution capable of meeting the financing challenge of SMEs and SMIs and national development promotion programs.
The main products offered by the Fund are:
- The Individual Guarantee which is aimed directly at companies, particularly SMEs/Large companies borrowing from banks (guarantee granted on a case-by-case basis). FAGACE also offers its guarantee to the financing of a financial institution which is aimed at small entrepreneurial entities and thus facilitates the “refinancing” of these financial institutions (from commercial banks) and the granting of credits to SMEs.
- The Portfolio Guarantee: authorizes the bank to include in the guarantee, without prior approval of the guarantee mechanism, all loans which meet certain agreed criteria.
Who are the (eligible) beneficiaries of these products? The sectors of activity concerned?
The Fund grants its approval for the granting of loans, in response to the guarantee requirement of financial institutions; thus sharing the risk of non-repayment of the credit. This system encourages financial institutions to lend more to project leaders at reasonable rates; which helps fill the funding gap. As such, FAGACE operates in all sectors of activity authorized in its member states. The target beneficiaries of the Fund include all development actors: viable private or mixed companies, all sectors of activity combined, national and international financial institutions, and regional organizations promoting the economic integration of Member States.
What are the conditions and procedures for access to FAGACE guarantees?
To benefit from the Fund’s guarantee for bank loans, the promoter contacts his bank which, after financing agreement, refers to FAGACE.
Thus, for portfolio guarantees, the partner bank contacts FAGACE. For the guarantee of bond loans, FAGACE is contacted by the Management and Intermediation Company (SGI) responsible for arranging the operation; for re-guarantee and co-guarantee, by a partner institution, an SGI or by lending banks and, finally, for market guarantees, by the promoter’s bank.
At what cost does FAGACE offer its warranty services?
Regarding costs, the rates applied depend on the level of risk incurred on each project. The guaranteed portion is set at a maximum of 50% of the amount of credits and assistance granted, and 100% for the guarantee of raising resources on the financial market.
After 60 years of independence, Africa is still struggling to mobilize internal resources to finance its development? How can you explain this situation?
This situation is explained firstly by the underbanking of African economies. In fact, very few Africans have a bank account and the average banking rate is around 15%. A good banking policy makes it possible to facilitate access to bank credit for a greater number of the population, therefore financing the economy and also mobilizing domestic savings.
We are witnessing a vicious circle of endogenous underfinancing of African economies and one of FAGACE’s missions is to help accelerate the financing of the economies of member countries in collaboration with the banking sector by promoting increasing banking use of the economies. It should be noted that financial resources must be continually regenerated and FAGACE is the essential link in the chain of financial instruments and the complete and integrated mechanism for mobilizing internal resources for full financing without exclusion.
The resources exist, you just need to have the information and the ability to negotiate better. FAGACE thus positions itself as the Pan-African Institution that supports the financing of African development with its network of partners who adapt financial engineering to each type of structuring project and each context.
Is FAGACE a response to this problem of access to financing for project leaders, particularly SMEs?
SMEs constitute the backbone of FAGACE member countries and represent more than 80% of the economic fabric, contribute between 20-30% of GDP, like other African countries and constitute important job providers. especially in rural areas.
SMEs contribute to structuring and strengthening the local economic fabric through the knock-on effect they have on their local customers and suppliers, promoting the creation of production and distribution sectors fully integrated into the local fabric.
They also contribute to poverty reduction and enable inclusive and sustainable growth. Meeting the financing challenge of SMEs would make it possible to exploit the vast opportunities for economic and social development that they offer in terms of job creation and added value. Hence the interest and pressing need for an efficient and effective public guarantee tool like FAGACE as a key solution to the challenge of access to business financing. FAGACE grants its approval for the granting of loans to SMEs, in response to the requirement for guarantees from financial institutions; thereby absorbing or sharing the risk of non-repayment of the loan. This system encourages financial institutions to lend more to SMEs at competitive rates; which helps bridge the aforementioned funding gap.
With the funding received, SMEs emerge, structure themselves, realize their development ambitions and ultimately create more added value and jobs.
The benefit of guarantees also lies in the significant multiplier effect they generate.
40 years after its creation, what assessment do you make of FAGACE’s contribution to the socio-economic development of member countries?
Indeed, FAGACE’s interventions have made it possible to mobilize to date more than 2,500 billion for the benefit of its member States, particularly in the strategic sectors of agriculture, agro-industry, transport, industry, and Energy. This level is appreciable but needs to be strengthened in the face of the increasingly growing needs of the economies of the Member States. FAGACE, by working with the banking and financial sector, contributes, as I said, to increasing the banking rate in African economies.
What are the constraints and difficulties that FAGACE encounters?
To respond more effectively to the needs of States, much remains to be done to ensure our growth and, above all, our transformation in order to consolidate our achievements. After 44 years, FAGACE is today opening a new page in its history.
In this perspective, the new Strategic Plan 2021-2025 constitutes the compass for the development of our Institution. FAGACE is modernizing by adopting all international standards in Governance.
Is there a certain fear for private actors to call on your institution in the implementation of their investment projects? What would explain this?
What you need to know is that to benefit from the FAGACE guarantee, the promoter first contacts his bank which, after a financing agreement, refers to the Fund. Indeed, the promoter may have apprehensions about submitting his loan application to a bank.
But by definition, the bank is an institution whose main activity is to finance the economy through its public and private companies; like any company, it seeks to minimize its risk-taking and optimize its profitability.
Alongside their own commercial requirements, the so-called “Basel III” agreements require financial institutions to respect a certain ratio of capital in relation to credits granted to consolidate structures in the event of non-repayment.
For these reasons, banks are extremely cautious in their risk analysis. They generally do not want to risk more money in the project than the creator(s) themselves. In the same way, they prefer to share risks with as many partners as possible, such as guarantee funds, to limit the negative effects.
This partly explains why some business creation projects encounter difficulties in obtaining bank financing. These are generally projects: deemed “too daring”, or presenting an unbalanced financing plan, or carried out by one or more creators who do not have the experience desired by the bank, or who do not raise a level of equity sufficient, or whose product/service does not seem to meet market needs, etc.
To overcome this situation, there was a Center of Excellence called the FAGACE Institute for the supervision and capacity building of different actors in connection with member countries, chambers of commerce, employers, the banking and financial sector, rural entrepreneurs and similar institutions.
Under your leadership, FAGACE adopted a new strategic plan. What is the vision of this new plan? What will change with this new strategic plan?
The FAGACE Board of Governors adopted in February 2021 a new Strategic Plan for our Institution. Through this new 2021-2025 Strategic Plan called “The New Momentum”, our vision is to make FAGACE a modern institution that fully contributes to the financial integration of Africa.
This Plan is based on: the modernization of the Fund, the strengthening of governance, the strengthening of the Institution’s own funds, the development of operational activities and the intensification of cooperation with Member States, opening to private capital and to new States, with a view to positioning FAGACE as a strategic development partner in Africa.
In this context, the Fund intends to make local interventions in its member states with a view to supporting investment financing and thus meeting the challenges of growth and employment. This will notably involve multifaceted support in the context of project financing, notably public projects, PPPs, private sector projects, diversified interventions which will be increased to meet the needs of the economies.
To do this, the banks being at the heart of the Fund’s operational system, the new partnership with the banks is based on a frank commitment from FAGACE and a review of the operating methods. This translates into regular and transparent financial communication, a risk management-oriented approach, a review of the guarantee within a period of no more than 10 days, an effective procedure for managing defects with settlements without delay. All these measures constitute a strong signal to technical and financial partners, for more fruitful cooperation.
Your institution operates in Burkina Faso. Tell us about its contribution to the Burkinabè economy (possibly the sectors of activity which have benefited from FAGACE support).
In Burkina, the Fund’s interventions amount to around 30 billion which made it possible to mobilize nearly 90 billion in the strategic sectors of agro-industry, transport, industry and energy.
You have been in Burkina Faso since August 9, 2021. What is the purpose of your stay in the land of honest men?
This mission is part of consultations with FAGACE member states and aims to strengthen the interventions of the Guarantee Institution in Burkina Faso.
To this end, the mission program was structured around three (03) major activities:
meetings with the High Authorities of Burkina Faso;
meetings with the main players in market development on the role and intervention mechanisms of FAGACE;
bilateral meetings with local banks.
You are at the end of your mission. What assessment do you draw from your stay?
The results of the mission are positive. From discussions with the Government, it emerges the desire to see FAGACE strengthen its role as guarantor to boost the financing of the Burkinabe private sector in general and the economy in general. In this context, a Fund Liaison Office in Burkina Faso will be created.
Furthermore, during the various meetings, Burkinabè financial institutions and economic operators all admitted the need for a guarantor such as FAGACE in the financing system for the economy and the private sector in particular. To this end, the discussions concerned the new operating mode in connection with the 2021-2025 Strategic Plan, the flexibility of the Fund’s products and their suitability for the local market as well as the supervision of project leaders.
What are the prospects or projects for FAGACE interventions in Burkina Faso in the short and medium term?
At the end of the meetings, the Fund affirmed its availability to provide short-term support to:
the establishment in Burkina Faso of support structures for the private sector;
the organization of training seminars initiated by the State of Burkina for SFDs, Design Offices, SMEs/SMIs and players in the financial ecosystem.
the Information and Liaison Office to be set up, whose major objective of the Fund is not only to strengthen cooperation with the Government but also to accelerate the financing of the Burkinabè economy, to deepen dialogue with technical and financial partners as well as the private sector.
Do you have a particular message for private and public actors in the Burkinabe economy?
As you know, the National Economic and Social Development Plan (PNDES) of Burkina Faso notes, among other things, the low competitiveness of existing industries and the weak development of agro-industry, the predominance of the informal economy, and the poor access of economic operators, particularly small and medium-sized enterprises (SMEs), to financial services, insufficient resources adapted to the needs of the structural transformation of the economy.
In this regard, FAGACE is committed not only to increasing its interventions in Burkina Faso with a particular emphasis on the promotion of SMEs/SMIs, startups and rural entrepreneurs but also to supporting the financing of PNDES investment projects.
Finally, FAGACE for the 2nd consecutive year supports with other Institutions the Exhibition of SMEs and Banks in the UEMOA area which will be held in Ouagadougou in November 2021.
